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Watsco
(NYSE:WSO)
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Rating:74Outperform
Price Target:
$342.00
▲(9.25% Upside)
Action:Reiterated
Date:10/27/26
WSO scores well primarily due to strong financial quality (low leverage, steady margins, and solid cash conversion) and a constructive earnings-call backdrop highlighting improving demand, strong acquisitions, and technology-led growth. The score is held back by a still-weak longer-term technical trend (below 100/200-day averages) and a valuation that is not cheap on P/E despite a supportive dividend yield.
Positive Factors
Conservative balance sheet and cash generation
Low leverage gives Watsco financial flexibility through HVAC cycles and supports acquisitions or investment without excessive financing risk. Free cash flow converting at roughly 95% of net income also indicates that reported earnings generally translate into usable cash for reinvestment and shareholder returns.
Negative Factors
Gross margin remains below long-term target
A sustained gap between current gross margin and the 30% objective indicates that pricing, product mix, customer mix, and integration benefits have not yet fully translated into profitability. Larger customers and acquired operations can add volume while limiting near-term margin expansion and earnings leverage.
Read all positive and negative factors
Positive Factors
Negative Factors
Conservative balance sheet and cash generation
Low leverage gives Watsco financial flexibility through HVAC cycles and supports acquisitions or investment without excessive financing risk. Free cash flow converting at roughly 95% of net income also indicates that reported earnings generally translate into usable cash for reinvestment and shareholder returns.
Read all positive factors
Watsco Key Performance Indicators (KPIs)
Any
Revenue by Geography
Sales distribution across the U.S., Puerto Rico, Mexico and other markets highlights concentration risk and regional growth potential. Strong U.S. exposure ties results to local housing, commercial construction and seasonal demand, while growth in Mexico/Latin America can expand the addressable market but adds currency and execution risk.
Sales distribution across the U.S., Puerto Rico, Mexico and other markets highlights concentration risk and regional growth potential. Strong U.S. exposure ties results to local housing, commercial construction and seasonal demand, while growth in Mexico/Latin America can expand the addressable market but adds currency and execution risk.
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The Fly
The FlyWatsco (WSO) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$12.73B
Dividend Yield4.22%
Average Volume (3M)557.83K
Price to Earnings (P/E)26.4
Beta (1Y)0.83
Revenue Growth-2.98%
EPS Growth-12.07%
CountryUS
Employees7,000
SectorIndustrials
Sector Strength72
IndustryIndustrial - Distribution
Share Statistics
EPS (TTM)11.37
Shares Outstanding35,977,493
10 Day Avg. Volume630,219
30 Day Avg. Volume557,831
Financial Highlights & Ratios
PEG Ratio-3.37
Price to Book (P/B)4.59
Price to Sales (P/S)1.76
P/FCF Ratio23.87
Enterprise Value/Market Cap1.29
Enterprise Value/Revenue2.21
Enterprise Value/Gross Profit8.15
Enterprise Value/Ebitda22.74
Forecast
1Y Price Target
$363.33Price Target Upside16.06% Upside
Rating ConsensusHold
Number of Analyst Covering8
EPS Forecast (FY)12.02
Revenue Forecast (FY)$7.58B
Watsco Business Overview & Revenue Model
Company Description
Watsco, Inc., together with its subsidiaries, engages in the distribution of air conditioning, heating, and refrigeration equipment, and related parts and supplies in the United States, Canada, Latin America, and the Caribbean. It distributes equi...
How the Company Makes Money
Watsco primarily makes money by buying HVAC equipment, parts, and related supplies from manufacturers and selling them to HVAC contractors and dealers at a markup, generating revenue from product sales (its core revenue stream). A significant port...
Watsco Earnings Call Summary
Earnings Call Date:Oct 27, 2026
(Q3-2026)
| Next Earnings Date:Feb 17, 2027
Earnings Call Sentiment Positive
The call was strongly positive overall. Watsco reported record revenue and gross profit, improving organic demand, strong acquisition performance, significant digital and technology growth, a robust balance sheet, and positive October momentum. The main challenges were gross margin below the 30% long-term goal, higher SG&A and variable costs, an incomplete replacement-market recovery, increased inventory, and expected input-cost-driven pricing pressure. Management characterized these issues as manageable within a broader recovery and long-term growth strategy.Positive Updates
Record Third-Quarter Revenue and Earnings
Third-quarter sales increased 7% to a record $2.22 billion, including 4% same-store growth. Gross profit was a record $586 million, gross margin was 26.4%, operating income was $225 million with a 10.1% operating margin, and earnings per share was $3.77.
Negative Updates
Gross Margin Below Long-Term Target
Third-quarter gross margin was 26.4%, below Watsco's long-term 30% goal. Management cited customer and product mix, higher new-construction equipment sales, the addition of Jackson Supply at margins below Watsco's 27% range, and the comparison with last year's refrigerant shortage as factors affecting margins.
Read all updates
Q3-2026 Updates
Positive
Negative
Record Third-Quarter Revenue and Earnings
Third-quarter sales increased 7% to a record $2.22 billion, including 4% same-store growth. Gross profit was a record $586 million, gross margin was 26.4%, operating income was $225 million with a 10.1% operating margin, and earnings per share was $3.77.
Read all positive updates
Company Guidance
Management expects the impact from the A2L transition to be “largely over by the end of this year,” remains focused on its “long-term goal of 30%” gross margins, and said Hydros “will continue to scale in 2027 to more locations and more vendors”; October was “looking healthy to date,” with management saying it “hope and expect to carry it through the end of the year, but hard to say,” while total-company revenues were “up double digits so far in this quarter,” including acquisitions. Management expects “some price increases this fall going into next year,” and said the expectation is that OEM pricing actions over “the next 12 months” will “come early and more conventional and kind of more ordinary”; fourth-quarter margin is “generally” better, with a “20, 30 basis points of improvement” over a “10-year average,” although management said, “I’m not giving guidance.” Management also said there is “an opportunity” for year-end inventory to be “more or less equal to last year at the year-end, excluding the two acquisitions we have made,” and that side discharge, currently “in the 8%-10% range of the total market today,” “is going to continue to grow.”Watsco Financial Statement Overview
Summary
Income Statement
78
Positive
Balance Sheet
86
Very Positive
Cash Flow
74
Positive
| Breakdown | TTM | Dec 2025 | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 |
|---|---|---|---|---|---|---|
Income Statement | ||||||
| Total Revenue | 7.44B | 7.24B | 7.62B | 7.28B | 7.27B | 6.28B |
| Gross Profit | 2.02B | 2.03B | 2.04B | 1.99B | 2.03B | 1.67B |
| EBITDA | 724.11M | 781.43M | 792.10M | 803.72M | 840.59M | 656.65M |
| Net Income | 469.52M | 496.99M | 536.29M | 536.34M | 601.17M | 418.94M |
Balance Sheet | ||||||
| Total Assets | 5.23B | 4.46B | 4.53B | 3.73B | 3.49B | 3.09B |
| Cash, Cash Equivalents and Short-Term Investments | 498.70M | 733.28M | 781.94M | 210.11M | 147.50M | 118.27M |
| Total Debt | 429.27M | 478.79M | 447.46M | 404.79M | 390.53M | 369.71M |
| Total Liabilities | 1.70B | 1.23B | 1.47B | 1.11B | 1.24B | 1.09B |
| Stockholders Equity | 3.54B | 2.78B | 2.66B | 2.23B | 1.89B | 1.66B |
Cash Flow | ||||||
| Free Cash Flow | 676.59M | 535.06M | 743.01M | 526.48M | 536.31M | 324.10M |
| Operating Cash Flow | 703.42M | 569.61M | 773.10M | 561.95M | 571.96M | 349.57M |
| Investing Cash Flow | 20.45M | -98.12M | -290.67M | -41.34M | -33.84M | -148.58M |
| Financing Cash Flow | -549.07M | -568.12M | -158.53M | -460.08M | -503.96M | -228.60M |
Watsco Technical Analysis
Neutral
313.05
Price Trends
304.04
Positive
333.33
Negative
360.50
Negative
Market Momentum
1.76
Negative
51.85
Neutral
72.85
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For WSO, the sentiment is Neutral. The current price of 313.05 is above the 20-day moving average (MA) of 295.63, above the 50-day MA of 304.04, and below the 200-day MA of 360.50, indicating a neutral trend. The MACD of 1.76 indicates Negative momentum. The RSI at 51.85 is Neutral, neither overbought nor oversold. The STOCH value of 72.85 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for WSO.
Watsco Risk Analysis
Watsco disclosed 17 risk factors in its most recent earnings report. Watsco reported the most risks in the "Finance & Corporate" category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
Watsco Peers Comparison
UnderperformOutperform
Sector (63)
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
78 Outperform | $63.94B | 34.60 | 48.70% | 0.70% | 7.80% | -0.65% | |
74 Outperform | $12.73B | 26.37 | 16.76% | 4.22% | -2.98% | -12.07% | |
74 Outperform | $11.93B | 29.28 | 22.17% | 0.61% | 8.84% | 8.10% | |
67 Neutral | $16.06B | 22.49 | 14.06% | 0.59% | 12.51% | 13.23% | |
63 Neutral | $10.79B | 15.43 | 7.44% | 2.01% | 2.89% | -14.66% | |
60 Neutral | $44.40B | 21.92 | 34.00% | 1.55% | 8.17% | 37.33% | |
54 Neutral | $2.71B | 7.37 | 14.70% | ― | 3.42% | ― |
* Industrials Sector Average
WSO
Watsco
305.33
-40.55
-11.72%
AIT
Applied Industrial Technologies
324.68
68.38
26.68%
GWW
WW Grainger
1,357.60
402.02
42.07%
WCC
Wesco International
329.50
110.16
50.22%
REZI
Resideo Technologies
17.83
-12.64
-41.47%
FERG
Ferguson Enterprises
229.52
-13.92
-5.72%
Watsco Corporate Events
Business Operations and StrategyDividendsFinancial DisclosuresM&A TransactionsPrivate Placements and Financing
Watsco Posts Record Q3 Revenue, Expands Through Acquisitions
Positive
Oct 27, 2026
On October 27, 2026, Watsco reported record third-quarter revenues of $2.22 billion and strong cash generation, despite modest pressure on margins and earnings, as residential HVAC demand improved following last year’s transition to new A2L ...
Business Operations and StrategyM&A TransactionsPrivate Placements and FinancingRegulatory Filings and Compliance
Watsco to Acquire Granite Group in Strategic Merger
Positive
Sep 17, 2026
On September 12, 2026, Watsco entered into a merger agreement under which two newly formed subsidiaries will merge with BBH Granite Buyer, Inc. and Granite Group Holdings LLC, making both companies wholly owned subsidiaries. The deal values Granit...
Business Operations and StrategyDividendsFinancial DisclosuresM&A Transactions
Watsco reports mixed Q2 results amid margin normalization
Neutral
Jul 29, 2026
Watsco reported second-quarter and year-to-date 2026 results showing modest revenue growth but lower profitability amid normalized pricing and post-transition dynamics in the HVAC market. For the quarter ended June 30, 2026, revenue rose 2% to $2....
Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.